Lessons from the past: restaurants survived an FBT and so will car makers

If you're older than you'd prefer, you might remember the tax that was going to shut down Australia's restaurants.

In 1985, the Hawke government introduced sweeping tax reforms which, among other things, introduced the fringe benefits tax, and applied it to restaurant meals.

Restaurateurs went bananas. Many of their customers were businessmen taking clients, friends or colleagues to long lunches or dinners, and writing off the cost as a business expense. No, it isn't, the government said; it's a fringe benefit of the job, and should be taxed as such.

We were told restaurants would shut down, waiters and kitchen hands would be thrown out of work, the economy would slump. Opposition leader John Howard pledged that the Coalition would repeal the FBT ''lock, stock and barrel''.

Prime minister Bob Hawke and treasurer Paul Keating held firm. The tax came in. Restaurants did not shut down.

Activity at hotels and restaurants grew 21 per cent in the next four years, and doubled in less than 20 years.

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Howard became prime minister for 11 years; he never repealed the fringe benefits tax. A tax rort ended with no pain.

We're seeing it all again now. The Rudd government has decided to end the favoured tax treatment of company cars. The industry and opposition predict disaster. Opposition Leader Tony Abbott pledges that a Coalition government will abandon the reform.

What are the facts?

First, the change would not stop employees being given company cars, or buying them through salary sacrifice. What it would do is to ensure that they can no longer claim a business tax deduction for private travel.

After April 1 next year, anyone receiving a new company car or buying one through salary sacrifice would have to keep a log, just for three months every five years, recording when the car was used for business and when it was used privately.

Opponents say it will mean endless red tape and record-keeping. No, says the government: there are now apps that connect to your GPS and mobile phone that keep the records for you, and transmit them to your pay office.

If you suddenly change the rules in which an industry is operating, you can convulse it in ways that can destroy jobs.

And, obviously, people will choose to use a three-month period when they maximise their business use. Would it hurt the leasing industry? Almost certainly: after next April, they would no longer have a tax break to give people an incentive to buy their product. They would have to offer the technology that makes records easy to keep, and find other edges to keep them ahead of car dealers.

However, people would still buy cars.

Would it hurt local car manufacturing? Almost certainly: the industry says more than a third of vehicles sold to business or through salary sacrifice are Australian-made - as against fewer than one in 10 vehicles sold privately. Anything that shifts demand from business to individuals would hurt local manufacturers.

The truth is, no one knows what the effect would be, no more than they did in 1985. But the Victorian government's preliminary estimate that the tax change would cost local manufacturers 10,000 sales a year, cutting sales by about 8 per cent, sounds plausible. Should we therefore scuttle the reform?

Not if you believe Treasury's estimates. The total subsidies to the Australian car industry are just over $400 million a year. The average cost of the salary sacrifice tax break is $800 million a year.